Pinned
Jeanna Smialek
Reporting from Washington
Cooling inflation likely ‘ticks the box’ for a Fed rate cut.
The Consumer Price Index cooled in July compared with a year earlier, providing further evidence that inflation is moderating and likely keeping the Federal Reserve firmly on track to cut interest rates at its meeting next month.
Overall inflation was 2.9 percent in July on a yearly basis, the Bureau of Labor Statistics reported, easing slightly from 3 percent in June. The figure was milder than economists had expected, and it marked the first time inflation has slipped below 3 percent since 2021.
While inflation still exceeds the 2 percent that was normal before the coronavirus pandemic, it is much slower than the 9.1 percent peak in 2022.
And after stripping out food and fuel prices, a closely watched “core” index climbed 3.2 percent from a year earlier, a step down from the previous report and in line with expectations. Economists pay attention to that number because it gives a sense of the underlying inflation trend.
Here’s what else to know:
On a monthly basis, inflation was in line with economists’ expectations and slightly warmer than last month. Food prices increased 0.2 percent from the previous month, continuing a significant slowdown. But shelter was more problematic. Rents rose 0.5 percent, versus an 0.3 percent gain in June, and the government’s measure of homeownership costs also accelerated.
“It really ticks the box for a September rate cut,” says Gennadiy Goldberg from TD Securities. He said the “big question” for Fed officials is how much to cut interest rates now, and that will probably hinge on the job market.
The Fed has held interest rates at a relatively high 5.3 percent for the past year. Investors think that the big question is whether next month policymakers will cut rates by a quarter of a percentage point, a typical move, or by a half-point, which would be an unusually large cut.
The inflation report left many Democrats feeling victorious. “We’ve won the battle against inflation,” Bharat Ramamurti, former deputy director of the National Economic Council, wrote on X. While President Biden also cheered the inflation figures, he cautioned that the cost of living remained too expensive.
Wall Street had been on edge heading into the inflation report, after sharp stock swings this month reignited fears over the economy’s direction. The market staged a muted reaction to the report.
Fed policymakers aim for 2 percent annual inflation based on the Personal Consumption Expenditures inflation measure, which comes out later than the Consumer Price Index. That data for July will be released on Aug. 30.
Alan Rappeport and Jim Tankersley
Reporting from Washington
Easing inflation has the Democrats tasting victory.
Image
After more than two years of being politically battered over soaring prices, Wednesday’s inflation report left many Democrats feeling victorious.
Consumer prices rose 2.9 percent in the year through July, falling below 3 percent for the first time since 2021. The report keeps the Federal Reserve on track to cut interest rates next month, a move that could lift economic sentiment in the United States ahead of the November election.
“We’ve won the battle against inflation,” Bharat Ramamurti, former deputy director of the National Economic Council, wrote on X. “It’s time for the Fed to begin cutting rates.”
Congressional Democrats were also using the report to push the Fed to cut aggressively.
“Inflation is down,” Senator Martin Heinrich of New Mexico, the chairman of the Joint Economic Committee, said in a news release. “The price of gas or a new car have fallen over the last year. And many families can now breathe a bit easier. Now, we need to make sure that this relief is reaching all Americans.”
Republicans have been hammering Democrats over inflation and are unlikely to let them off the hook. They continue to note that prices are up nearly 20 percent since President Biden took office and note that the labor market is showing signs of slowing.
“Despite a small improvement in the rate of price increases, the damage from the Biden-Harris administration’s philosophy of ‘tax it, regulate it, and spend it’ is done and continues to plague the economy,” said Representative Jodey Arrington of Texas, the chairman of the House Budget Committee. “It’s hard to fathom how hardworking American families can survive another four years of the Biden-Harris failed economic agenda.”
Vice President Kamala Harris, the Democratic presidential nominee, has pledged to crack down on corporate price gouging and is expected to lay out additional plans for lowering costs in a speech this week.
Former President Donald J. Trump, her Republican opponent, will hold a rally in Pennsylvania this weekend with a focus on inflation, according to his campaign. He has claimed that the Biden administration’s spending policies have fueled record levels of inflation.
“Under Kamala Harris, everything costs 20 percent more than it did under President Trump,” said Karoline Leavitt, the Trump campaign’s national press secretary. “America cannot afford another four years of Kamala’s failed economic policies.”
While Mr. Biden cheered the inflation figures, he cautioned that the cost of living remained too expensive. He said large corporations had been sitting on record profits and failing to do enough to help.
“We have more work to do to lower costs for hardworking Americans, but we are making real progress,” Mr. Biden said, while noting that wages have outpaced price increases for 17 months running. “Prices are still too high.”
Advertisem*nt
SKIP ADVERTIsem*nT
Jordyn Holman
Reporting from New York
Walmart will release its quarterly earnings on Thursday. It's a good gauge for how U.S. consumers are faring, and this quarter would cover spending on activities like summer vacations and early back-to-school shopping. Executives at the company, the largest retailer in the U.S., have noted that inflation has driven more people who make over $100,000 to their stores, and analysts will be looking for signs that those shoppers have stayed, even as inflation has eased.
Ben Casselman
Reporting from New York
The price of many goods, including cars, clothes and some foods, continued to fall in July. So did some of the service prices that have been a big driver of recent inflation, like plane tickets. But a few categories remain stubborn, most notably housing and car insurance.
A bar chart showing the June-to-July changes in a selection of categories of the Consumer Price Index, adjusted for seasonality. 14 of the 24 categories shown rose, led by motor vehicle insurance and fuel oil. Airline fares and used cars and trucks declined the most.
Monthly changes in July
Motor vehicle insurance
+1.2
%
Fuel oil
+0.9
Fruits and vegetables
+0.8
Meats, poultry, fish and eggs
+0.7
Nonalcoholic beverages
+0.5
Rent of primary residence
+0.5
Alcoholic beverages
+0.3
All items
+0.2
Food away from home
+0.2
All items excl. food and energy
+0.2
Medical care commodities
+0.2
Tobacco products
+0.2
Electricity
+0.1
Physicians’ services
+0.1
Gasoline
–0.2
%
Dairy and related products
–0.2
New vehicles
–0.3
Motor vehicle repair
–0.4
Apparel
–0.5
Cereals and bakery products
–0.7
Piped utility gas service
–1.1
Hospital services
–1.6
Airline fares
–2.3
Used cars and trucks
Monthly changes in July
Motor vehicle insurance
+1.2
%
Fuel oil
+0.9
Fruits and vegetables
+0.8
Meats, poultry, fish and eggs
+0.7
Nonalcoholic beverages
+0.5
Rent of primary residence
+0.5
Alcoholic beverages
+0.3
All items
+0.2
Food away from home
+0.2
All items excluding food and energy
+0.2
Medical care commodities
+0.2
Tobacco and smoking products
+0.2
Electricity
+0.1
Physicians’ services
+0.1
Gasoline
–0.2
%
Dairy and related products
–0.2
New vehicles
–0.3
Motor vehicle maintenance and repair
–0.4
Apparel
–0.5
Cereals and bakery products
–0.7
Piped utility gas service
–1.1
Hospital services
–1.6
Airline fares
–2.3
Used cars and trucks
Danielle Kaye
Reporting from New York
Nothing in the inflation report has jolted the stock market. It maintained a sense of calm once trading got underway this morning, a sign that the fresh inflation numbers were in line with expectations. The S&P 500 and Nasdaq oscillated between very slight rises and falls in early morning trading, while the Russell 2000 index of smaller companies rose 0.4 percent.
S&P 500
Joe Rennison
Reporting from New York
The rise in the Russell is important as that index is more of a barometer of the broader economy than the S&P 500 or Nasdaq, which are packed with big multinational companies.
Jordyn Holman
Reporting from New York
Mark Hamrick, senior economic analyst at Bankrate, said that the C.P.I. was “good news” but added said people are still grappling with higher prices overall. “Evidence is piling up that consumers are struggling under the combined weight of high prices, elevated interest rates and the cooling job market. Even with the ‘as expected’ readings, prices broadly continued to rise last month.”
Advertisem*nt
SKIP ADVERTIsem*nT
Ben Casselman
Reporting from New York
Cooling inflation is good news for workers. Average hourly earnings, adjusted for inflation, have risen 0.7 percent over the past year, and 0.8 percent for rank-and-file workers. Nominal wages (that is, not adjusted for inflation) are rising more slowly than in the red-hot period coming out of the pandemic, but slower price increases mean that, in real terms, many workers are actually better off now than they were back then.
Jeanna Smialek
Reporting from Washington
One surprise here was that shelter inflation was a bit firmer than expected. That isn’t what Fed officials have been hoping for: They have been patiently waiting for rent and a measure of how much it would cost homeowners to rent to ease. But Omair Sharif, founder of Inflation Insights, told me that this month’s numbers looked like they might be an outlier.
Jeanna Smialek
Reporting from Washington
For instance, the equivalent measure was pushed up a lot by just rents in the West, which tied back to a pop in Los Angeles and Riverside. That makes it look like noise, Sharif said.
Jeanna Smialek
Reporting from Washington
“If you want to look at the totality of the data, the totality in my mind is pretty clear, and it is definitely toward more disinflation,” Sharif said.
Ben Casselman
Reporting from New York
Sharif follows these numbers as closely as anyone, so I take what he’s saying here seriously. But it’s worth noting that forecasters have been predicting a slowdown in shelter inflation for well over a year now and have been pretty consistently disappointed.
Jim Tankersley
Reporting from Washington
President Biden celebrated inflation falling below 3 percent in a news release. He also intensified a Democratic attack on corporations for keeping prices elevated.
Jim Tankersley
Reporting from Washington
“Prices are still too high. Large corporations are sitting on record profits and not doing enough to lower prices,” he said.
Jeanna Smialek
Reporting from Washington
“It’s great to see a ‘two’ handle on the yearly C.P.I. It doesn’t mean our work is done but it does mean we’re moving in the right direction, and with a bit of momentum,” Jared Bernstein, chair of the White House Council of Economic Advisers, told me in an email.
Advertisem*nt
SKIP ADVERTIsem*nT
Alan Rappeport
Reporting from Washington
After years of being battered by bad inflation news, current and former Biden administration officials are spiking the football this morning. The former deputy director of the National Economic Council, Bharat Ramamurti, wrote on social media that “we’ve won the battle against inflation” and a spokeswoman for Treasury Secretary Yellen predicted last year that by the end of this year the first numeral of the inflation rate would be a "2."
Madeleine Ngo
Reporting from Washington
Food price increases remained relatively unchanged in July.
Food inflation was relatively unchanged in July. Still, the new data continued to reflect the significant slowdown that food price increases have seen in recent months.
Overall, food prices in July rose 0.2 percent from the previous month, the same rate they rose in June. Grocery prices climbed 0.1 percent for the second straight month. The cost of dining out was up 0.2 percent over the month, a slightly slower rate from 0.4 percent in June.
Compared with a year earlier, food price gains also saw little changes. Food costs were up 2.2 percent in the year through July, the same rate that food prices rose in June. That is down significantly from 2022, when food price gains peaked at 11.4 percent.
Prices for fruits and vegetables rose 0.8 percent over the month. That is up from June, when prices fell 0.5 percent. Meats, poultry and fish prices rose 0.3 percent after they declined 0.1 percent the month before. Prices for cereals and bakery products fell 0.5 percent.
Egg prices increased again for the second straight month. In July, egg prices rose 5.5 percent over the month, a faster rate than in June, when they climbed 3.5 percent. Egg prices have been up and down each month since an outbreak of avian influenza contributed to a supply shortage and a big surge in prices early last year. Compared with a year ago, egg prices are up 19.1 percent.
Economists said they expected to see grocery inflation remain around current rates in the coming months, barring unforeseen shocks. Although inflation has eased, food prices remain a persistent concern for voters ahead of the presidential election. That could be in part because food prices have not fallen overall, and they have instead continued to rise. Grocery prices are up about 20 percent from four years ago.
Although wage growth is currently outpacing grocery price increases, some economists said it could take more time for consumers to feel relief.
“People are feeling frustrated in large part because earnings have just caught up to food inflation,” said Michael Swanson, the chief agricultural economist at Wells Fargo. “It could be a year or more before the closing of that gap is felt by consumers.”
Danielle Kaye
Reporting from New York
Futures for the Russell 2000, an index of smaller companies more closely tied to the ebb and flow of the economy, inched up, rising 1 percent. Smaller companies are poised to benefit from lower interest rates. The dollar, meanwhile, stayed fairly flat.
Advertisem*nt
SKIP ADVERTIsem*nT
Jordyn Holman
Reporting from New York
The summer is obviously a big time to travel. Some good news for those hopping on planes: The airline fares index fell 1.6 percent year-over-year in July.
Jeanna Smialek
Reporting from Washington
“It really ticks the box for a September rate cut,” said Gennadiy Goldberg from TD Securities. “The big question they have to decide is whether they should cut 25 or 50,” he said, referring to a quarter-point or half-point cut (25 or 50 basis points, in market lingo).
Jeanna Smialek
Reporting from Washington
“It gives the Fed maximum flexibility,” Goldberg said, explaining that the Fed will now be focused on the labor market, both the jobs report on Sept. 6 and weekly jobless claims data.
Ben Casselman
Reporting from New York
How significant was the increase in housing costs last month? The Bureau of Labor Statistics notes that it accounted for nearly 90 percent of the month-to-month increase in overall consumer prices.
Talmon Joseph Smith
Reporting from Durango, Co.
And when excluding shelter from the consumer price index, inflation has been hovering around the Fed’s 2 percent target for a year. In the meantime, many other inputs fluctuated, from auto insurance to medical insurance. But now, even with the government’s measure of shelter running hot, price increases overall appear to be on a cooler path.
Jim Tankersley
Reporting from Washington
Congressional Democrats are using the report to push the Fed to cut aggressively. “Inflation is down,” Senator Martin Heinrich of New Mexico, the chairman of the Joint Economic Committee, said in a release. “The price of gas or a new car have fallen over the last year. And many families can now breath a bit easier. Now, we need to make sure that this relief is reaching all Americans.”
Jim Tankersley
Reporting from Washington
“I am frustrated that unnecessarily high interest rates are squeezing families and starting to push up unemployment,” he added. “The Fed should recognize that inflation is down and cut rates before they cause further harm to the economy.”
Advertisem*nt
SKIP ADVERTIsem*nT
Jeanna Smialek
Reporting from Washington
The Fed has really been pivoting toward paying attention to the labor market, and this is really going to cement that transition. A possible cool-down in hiring is the big concern now, and officials are really going to be watching the jobs report on Sept. 6.
Ben Casselman
Reporting from New York
It’s worth pausing for a moment to reflect on what this report represents. On the one hand, there’s little practical difference between 3 percent and 2.9 percent inflation. But symbolically, the drop back to a “two-handle,” as the nerds call it, is remarkable given where inflation was just two years ago.
Ben Casselman
Reporting from New York
Most significantly, the progress on inflation has come with little damage to the broader economy — the elusive “soft landing.” But the unemployment rate has crept up recently, raising concerns that the soft landing could be in jeopardy.
Joe Rennison
Reporting from New York
Markets are muted after the data release. There was a shortlived wobble in both stock and bond markets in the immediate aftermath — a sign that while the numbers make a Fed rate cut in September likely, they may not be enough to push the Fed into a larger cut.
Joe Rennison
Reporting from New York
Lindsay Rosner, head of multi-sector fixed income at Goldman Sachs Asset Management, said the data “cleared the way” for a quarter-point rate cut by the Fed in September, “while not completely shutting the door” on a larger, half-point cut.
Danielle Kaye
Reporting from New York
Today’s inflation numbers “won’t rock the boat,” said Chris Larkin, head of trading and investing at E-Trade. “Now the primary question is whether the Fed will cut rates by 25 or 50 basis points next month,” he said, adding that data over the next five weeks that points to a slowing economy could prompt the Fed to cut more aggressively.
Ben Casselman
Reporting from New York
Shelter inflation accelerated modestly in July, at least on a month-to-month basis. Rents rose 0.5 percent, versus an 0.3 percent gain in June, and the government’s measure of homeownership costs also accelerated.
Ben Casselman
Reporting from New York
Housing is by far the biggest component of the price index, and it has been one of the most stubborn categories. So the pickup, though modest, won’t be welcome news for policymakers.
Jim Tankersley
Reporting from Washington
High housing costs remain a huge concern among voters, particularly young voters. Expect to hear a lot about that from Harris and her opponent, former President Donald J. Trump, in the final weeks before the election.
Advertisem*nt
SKIP ADVERTIsem*nT
Jordyn Holman
Reporting from New York
After a slight rise in apparel prices in June, it declined in July 0.4 percent. Prices for both new and used vehicles also declined.
Jordyn Holman
Reporting from New York
Many major retailers, including Walmart, Target and Macy’s, will be announcing their quarterly earnings this week and next week. It will be interesting to see what those executives say about how they’re approaching pricing.
Madeleine Ngo
Reporting from Washington
Food price increases remained relatively unchanged in July. Overall, food prices rose 0.2 percent over the month, the same rate they rose in June. Grocery prices rose 0.1 percent for the second straight month.
Ben Casselman
Reporting from New York
The numbers are out! Consumer prices rose 0.2 percent in July and were up 2.9 percent from a year earlier. “Core” prices, excluding food and fuel, were up 0.2 percent on a monthly basis, and 3.2 percent from a year ago.
Ben Casselman
Reporting from New York
This is the first time that overall inflation, measured on a year-over-year basis, has come in below 3 percent since March 2021.
Jim Tankersley
Reporting from Washington
Biden and Harris will almost certainly celebrate that milestone, Ben. They will also be happy that this report appears to be keeping the Fed on track for a rate cut next month.
Jim Tankersley
Reporting from Washington
We say every month that the inflation numbers are important for President Biden, and that’s true again today. But now they are also important for Vice President Kamala Harris, the new Democratic nominee. Voters remain anxious about prices. She would love evidence that price growth is fading fast.
Advertisem*nt
SKIP ADVERTIsem*nT
Advertisem*nt
SKIP ADVERTIsem*nT
